Chastain v. Cooper & Reed

257 S.W.2d 422, 152 Tex. 322, 2 Oil & Gas Rep. 583, 1953 Tex. LEXIS 482

• Court: Texas Supreme Court
• Decided: April 1, 1953
• Docket: A-3818
• Status: Published

Opinions

Mr. Justice Calvert

delivered the opinion of the Court.

The opinion of the Court of Civil Appeals, see 250 S. W. 2d 652, contains a detailed statement of the factual background out of which arose all of the controversies involved in this case. Only such facts as are necessary to an understanding and decision of the law questions before this court will be stated in this opinion.

Two applications for writs of error were granted in this case. In the first, Whiteley-Phillips Drilling Company was petitioner and M. B. Chastain was respondent. In the second, M. B. Chastain was petitioner and Cooper and Reed and National Supply Company were respondents.

The question presented by the application of Whiteley-Phillips Drilling Company arises out of this situation: A trial court judgment in favor of Whiteley-Phillips against M. B. Chastain for services rendered under an oral drilling contract has been reversed and a take-nothing judgment rendered by the Court of Civil Appeals on the ground that the evidence establishes as a matter of law that there was a novation of such contract when Whiteley - Phillips entered into a written contract with one Humphrey Marshall under which Marshall agreed to pay for such services. Whiteley-Phillips contends that under the evidence the question of novation was a fact question which the trial court found in its favor and that the action of the Court of Civil Appeals was therefore error.

There is no serious disagreement between the parties as to the legal incidents of a novation. In the absence of such inconsistent provisions of two contracts that both cannot stand, thereby working an implied novation, it is held that a second contract will operate as a novation of a first contract only when the parties to both contracts intend and agree that the obligations of the second shall be substituted for and operate as a discharge of the obligations of the first. Money v. Dameron, Tex. Civ. App., 70 S.W. 2d 291, writ refused; Cooper Grocery Co. v. Strange, Tex. Com. App., 18 S.W. 2d 609; 31 Tex. Jur. pp. 394-397, Secs. 9 and 10. In keeping with this general rule it is held that to effect a novation by the substitution of one debtor for another thereby releasing the first, there must be agreement to that effect between all three parties, and a presumption of an intention to release the first debtor will not arise from the mere taking of the second. Scott, Adm’x v. Atchison, 36 Texas 76, Id. 38 Texas 384-390; Pierce Fordyce Oil Ass’n. v. Woods, Tex. Civ. App., 180 S.W. 1181, 1183, writ refused; Money v. Dameron, Tex. Civ. App., 70 S.W. 2d 291, 293. It is not necessary, of course, that a novation be in writing or that it be evidenced by express words; like any other ultimate fact it may be proved as an inference from the acts and conduct of the parties and other facts and circumstances. Commercial Nat. Bank of San Antonio v. Poulos, Tex. Civ. App., 8 S.W. 2d 222, no writ history; Watts Adms. v. Smith, 250 Ky. 617, 63 S.W. 2d 796, 91 A.L.R. 1206; 31 Tex. Jur., p. 400, §13. Even so, whether the taking of a new debtor is intended to operate as a release of the liability of the old, in the absence of an express agreement to that effect, is usually a question of fact, and can only become a question of law when the state of the evidence is such that reasonable minds cannot differ as to its effect. MeElwrath v. City of McGregor, Tex. Civ. App., 58 S.W. 2d 851; Cooper Grocery Co. v. Strange, supra.

The question before us then is this: Does the evidence show a novation as a matter of law, or, on the other hand, is there evidence in the record that could reasonably form the basis of a conclusion that Whiteley-Phillips did not intend by entering into a written contract with Marshall to thereby release Chastain from his obligations under his oral contract?

From the record it appears that Whiteley-Phillips began drilling operations on September 22,1948, under an oral contract with Chastain by the terms of which Whiteley-Phillips was to be paid at the rate of $6.00 per foot, plus extras. After the oral contract had been entered into, Chastain in a telephone conversation advised A.O. Phillips, President of Whiteley-Phillips, that he had made a deal with one Warren Wright to pay for drilling the well at the rate of $6.50 per foot and requested Phillips to prepare and enter into a contract with Wright on that basis, rebating fifty cents per foot to him, Chastain, and to confirm by letter. Accordingly, on September 21, 1948, Phillips prepared a contract and sent the same to Chastain for execution by Wright, and by letter confirmed the agreement for the rebate.

The record leaves no doubt that Chastain and Phillips intended that the contract with Wright should operate as a novation, Phillips himself testifying in that connection that he told Chastain that it “would be satisfactory to make the contract to Warren Wright” and that he “had an agreement to release Mr. Chastain.” With contract conditions thus existing Whiteley-Phillips proceeded with drilling operations without a written contract with anyone.

The contract with Wright was never consummated and on October 28th Chastain wrote Whiteley-Phillips advising that Mr. Humphrey Marshall had decided to pay for drilling the well and advising: “Please write a new contract on same, leaving Mr. Warren Wright off and make for Mr. Marshall’s signature.” The letter further advised that Marshall would pay only $6.00 per foot, thereby rendering the rebate agreement ineffective, and that the contract should be handled through Marshall’s attorney.

Following receipt of Chastain’s letter Whiteley-Phillips prepared a contract, dated back to September 20th, to be signed by both Chastain and Marshall, and Ellison Miles, an officer of Whiteley-Phillips, carried the contract to Shreveport for Chastain’s signature. Chastain declined to sign the contract saying, according to the testimony of Miles, that he had made a deal with Marshall to pay the drilling costs, that “he wasn’t responsible, he didn’t have anything to do” with drilling the well, and that “he would appreciate it if we would make this contract with Marshall and he would guarantee the contract.” Miles further testified that Chastain asked “on what terms we would accept Mr. Marshall,” and that he answered that “the only way we would take over this contract would be that he (Marshall) would put up the money in the bank in Dallas in escrow.”

Money to cover drilling costs was never deposited by Marshall but Whiteley-Phillips investigated Marshall’s ability to pay such costs and, being assured on this score by Marshall’s banker at Atlanta, proceeded to strike Chastain’s name from the contract wherever it appeared and to execute the same with Marshall alone. There is no record evidence that from that time forward Whiteley - Phillips ever communicated with Chastain again with reference to payment of drilling costs until the filing of this suit, although one witness testified that first cost invoices were mailed to him and returned by him. In the meantime, however, Whiteley-Phillips sent invoices covering drilling costs to Marshall on November 15th and on November 30th “as covered by” and “in accordance with” our contract. Copies of the invoices did not go to Chastain. On March 31, 1949, Whiteley-Phillips filed its affidavit of record in the Mechanic Lien Records of Henderson County in which it was stated that “the annexed is a true and correct account of the labor performed and materials furnished by Whiteley-Phillips Drilling Company to Humphrey Marshall of Dallas County” and “that said labor was performed and materials were furnished to said Humphrey Marshall * * * under and by virtue of a written contract between Whiteley-Phillips Drilling Company and Humphrey Marshall * * There was no statement in the affidavit that any of the labor or materials were furnished to M. B. Chastain. Attached to the affidavit was the contract with Marshall and an itemized statement of the entire drilling costs all of which were shown to be in account with Marshall and none of which were shown to be in account with Chastain. All charges on Whiteley-Phillips’ books were made to Marshall, none to Chastain.

As security for its debt Whiteley-Phillips took a mortgage on two airplanes owned by Marshall, thereafter releasing one, and took from Marshall numerous assignments of oil and gas leases and interests in leases. It neither took nor sought any security from Chastain.

It cannot be doubted that the evidentiary excerpts here detailed offer on their face strong support for the conclusion reached by the Court of Civil Appeals. Viewing the evidence in its light most favorable to Whiteley-Phillips and disregarding that favorable to Chastain we nevertheless find that Whiteley-Phillips agreed to release Chastain in favor of a contract with Wright; that Chastain requested Whiteley-Phillips to substitute the name of Marshall for that of Wright; that Whiteley-Phillips at first declined to comply with this request, preparing the contract for both Chastain and Marshall to sign, but later complied by striking out Chastain’s name when he refused to sign; that Whiteley-Phillips when asked on what terms they would accept Marshall on the contract agreed that it would “take over” the contract if Marshall would deposit the necessary funds in a Dallas bank, there being no occasion whatever for such a requirement if Marshall’s signature to the contract was to be only additional security for the drilling costs; that Whiteley-Phillips made an independent investigation into Marshall’s financial ability to pay the cost of drilling the well, there being again no reason for such an investigation if Marshall was to be but an additional debtor; that the contract on its face was in all respects an original contract, dated back to a date before drilling operations began, with no reference therein to an existing and continuing contract with Chastain; that all charges on Whiteley-Phillips’ books were to Marshall, none to Chastain; that a mechanic’s and materialman’s lien was filed against Marshall, none against Chastain; that an effort was made before suit to collect from Marshall by obtaining mortgages, assignments, etc., but no such effort was made to collect from Chastain; that from the date of the signing of the contract with Marshall to the date of suit no further contact of any sort was had with Chastain with reference to the drilling of the well.

Whiteley-Phillips contends that its position that there was no intention to release Chastain and therefore no novation finds support in the following circumstances: (1) The testimony of its official that they did not intend that the contract with Marshall should operate as a release of Chastain. But their testimony as to their mental state is overcome by their acts and conduct clearly showing the contrary. (2) The denial by Chastain of the existence of the oral contract, it being contended in this connection that Chastain could not have intended that the contract with Marshall should operate to release his obligations under the oral contract since he never recognized the existence of the oral contract. This is but another instance of alternative positions which one is permitted to take in a civil suit, and the claim by Chastain that the oral contract never existed, and a finding by the trial court that it did, did not prevent him from asserting and prevailing on the further claim in the alternative that if the oral contract did exist he was released by the novation thereof. (3) The statement of Chastain that if Whiteley-Phillips would make the contract with Marshall he “would guarantee the contract.” As we view this statement it supports the position of a novation rather than the position of no novation in that it indicates an offer by Chastain to substitute an oral contract of guaranty of Marshall’s liability in lieu of his own contract of primary liability and an acceptance of such offer by Whiteley-Phillips. (4) Testimony of Whiteley-Phillips’ officials that the account was set up on their books in the name of Marshall because Chastain requested when the written contract was presented to him for his signature that all charges be made to Marshall. This testimony tends to support the view that Chastain was insisting on the substitution of Marshall’s obligation for his own and does not support Whiteley-Phillips’ position of no novation. (5) Testimony of Chastain that at the time the written contract was presented to him nothing was said about releasing him by any of the parties. The absence of such a statement can be of little comfort to Whiteley-Phillips. It indicates, at most, that there was no express release. If there had been, there would be no occasion for resting the result reached herein on circumstantial evidence. (6) Testimony of Miles and of Bill Campbell, attorney for Marshall, that at the time Marshall and Miles executed the written contract, Miles then stated, in substance, that by entering into the written contract Whiteley-Phillips did not intend to release Chastain. While it is held generally that hearsay and self-serving declarations of this character accompanying an act are admissible against or on behalf of the declarant to explain the act and to show the intent of the declarant, the rule appears to be applied only in cases where the declaration is consistent with and explanatory of the act. We doubt that declarations of intention accompanying an act but wholly inconsistent therewith should be admitted to prove intent. This court said in Ex-Parte Blumer, 27 Texas 734,744, that such declarations “are to be credited as the index of his intention, when not unreasonable in themselves, not inconsistent with other facts in the case, and not under circumstances creating suspicion of insincerity.” At the very time the declaration indicating an absence of intention to release Chastain was being made Miles was striking Chastain’s name from the written contract, dated back to the beginning of operations, and signing the contract with Marshall alone, an act wholly inconsistent with the declaration. In any event, the declaration alleged to have been made by Miles at the time he signed the contract is entitled to no more weight than his testimony as a witness that he did not intend that his act should operate as a release of Chastain. Such declarations of intent were nullified by the acts and conduct of the parties clearly establishing a contrary intent.

From our examination and analysis of the record we must hold that there is in the record no evidence of probative force to support the finding of the trial court that Whiteley-Phillips did not intend by its written contract with Marshall to release Chastain from the obligations of his oral contract. On the contrary, the evidence that it did so intend is so conclusive that we hardly see how reasonable minds could differ with respect thereto.

The application of Chastain presents these questions: That there is in the record no evidence of probative force to support the trial court’s judgment against him in favor of National Supply Company for the sum of $2,176.13 as the value of certain oil well equipment, and no evidence to support the judgment against him in favor of Cooper and Reed for the sum of $1,310.00 for services rendered in building roads, digging pits and preparing the location for the drilling of the well; and that the court was without authority to render judgment against him for attorneys’ fees in favor of National Supply Company in the sum of $350.00 and in favor of Cooper and Reed in the sum of $250.00. Chastain’s specific contention is that the equipment and services were contracted for by one Mitcham who, although an agent of Chastain in the Tri-Cities field in Henderson County in the operation of certain producing leases since 1946, was not the agent of Chastain but the agent of Humphrey Marshall in his activities in connection with the drilling of this particular well.

The claim of National Supply Company rests upon the apparent authority of Mitcham to bind Chastain for the purchase of oil well drilling equipment known as a “Christmas tree” at a cost of $2,048.15 and 450 feet of pipe at a cost of $127.98.

The doctrine of apparent authority is based on estoppel, and one seeking to charge a principal through the apparent authority of an agent to bind the principal must prove such conduct on the part of the principal as would lead a reasonably prudent person, using diligence and discretion, to suppose that the agent has the authority he purports to exercise. Great American Casualty Co. v. Eichelberger, Tex. Civ. App., 37 S.W. 2d 1050, writ refused. In this case National Supply Company rests its case upon the conduct of Chastain in permitting Mitcham to make purchases in his behalf from such company on prior occasions. The only testimony in the record with regard to such prior purchases comes from Chastain himself, as follows:

“Q. Mr. Mitcham has purchased materials from the National Supply Company for you?

“A. Nothing only small makeup supplies on the lease.

“Q. He has from time to time made purchases from the National Supply Company?

“A. Not any big purchases, he might have bought a few small items.

“Q. He has made purchases though?

“A. I don’t know, you will have to ask him, I just don’t know.”

National Supply Company offered as witnesses on the trial of the case one N. S. Shipman who had been the company’s salesman in the Tri-Cities field since 1945, and W. P. Smith, Division Credit Manager of the company in charge of credits in the area where the Tri-Cities field was located, but there is in the record not one word of testimony from either of such witnesses as to prior sales made to Chastain through Mitcham. There is no testimony from anyone representing National Supply Company that the company was induced to sell the items in controversy here on Mitcham’s order because Chastain had permitted Mitcham in the past to make purchases on his behalf from the company. As a matter of fact, the record reflects that the Christmas tree was shipped to the well by Cameron Iron Works from whom it was ordered via telephone by Mitcham, and that it had already been delivered on the job before the agent of National Supply Company — through whom it was billed because Cameron sold only through its representative outlets— sought the signing of a formal order blank. Even then National Supply Company’s representative at first obtained the signature of one of Whiteley-Phillips’ drillers to the order blank, and obtained Mitcham’s signature thereto only after the driller, on reflection, had his signature removed because of the large amount involved. Thus at appears that the sale of the Christmas tree was actually made by Cameron Iron Works, and there is no evidence that anyone connected with National Supply Company knew that the order was placed by Mitcham or that National Supply Company accepted responsibility for the credit sale because of a belief that Mitcham was authorized to make the purchase on behalf of Chastain. Neither the testimony of the witnesses for National Supply Company nor the very indefinite and uncertain testimony of Chastain himself will support a recovery against Chastain based on a prior course of dealing with Mitch-am as Chastain’s agent. Neither does the evidence in the record establish the other necessary elements of estoppel. 2 Tex. Jur., Agency, p. 425, §39-p. 431, §43; 2 Am. Jur., Agency, pp. 86-90, §§104,105; 2 C.J.S., Agency, §29b (2) (b), pp. 1063-1067, §96, pp. 1205-1220. Since no part of the National Supply Company judgment on its claim can be permitted to stand, neither can its judgment for attorneys’ fees. Article 2226, Vernon’s Annotated Statutes.

With respect to the claim of Cooper and Reed, the evidence viewed in its most favorable light in support of the judgment, reflects that Cooper and Reed, who were in the bulldozer business, had been employed by Mitcham on prior occasions to do dirt work for Chastain in the Tri-Cities field on the Riddlesperger and Baker leases, and that invoices on such work were made out to Chastain and paid by Chastain; that Mitcham represented that the claimants were being employed to do the work in question for Chastain; that the first invoice was made out to and forwarded to Chastain for payment but was returned by Chastain’s office manager to Mitcham on September 27, 1948, with a letter stating: “Please have them bill the $260.00 to Mr. Warren Wright, c/o M. B. Chastain, 725 Giddens Lane Bldg., Shreveport, La., as this is his bill, and we do not want to run the same through our books. Mr. Chastain will see that the bill is paid”; that claimant’s first and second invoices were then billed to Warren Wright but they were returned unpaid; that at about the time claimant completed their work Mitcham asked them to bill all of their invoices to Humphrey Marshall which they did but the bills remained unpaid.

If the foregoing evidence is not such as to support the trial court’s finding that Mitcham had express authority to represent Chastain in engaging the services of Cooper and Reed, which it is unnecessary to decide, it will at the very least support the trial court’s finding that Mitcham had apparent authority to engage such services on behalf of Chastain.

Cooper and Reed’s claim for services arose and their cause of action therefor accrued prior to the effective date of the Amendment to Article 2226, Vernon’s Annotated Statutes, whereby the amount of attorneys’ fees recoverable in cases of this type was changed from an amount “not to exceed twenty dollars” to “a reasonable amount.” The amendment of the statute was not retroactive. Government Personnel Mutual Life Ins. Co. v. Wear, 151 Texas 454, 251 S.W. 2d 525. The trial court was without authority to allow Cooper and Reed a recovery of attorney’s fees in excess of $20.00.

The judgments of the courts below in favor of National Supply Company against M. B. Chastain are reversed and judgment is here rendered that as against M. B. Chastain National Supply Company take nothing. The judgments of the courts below in favor of Cooper and Reed against M. B. Chastain are reformed so as to allow Cooper and Reed a total recovery against M. B. Chastain of $1,330.00. The judgment of the Court of Civil Appeals in all other respects is affirmed. All costs on appeal are assessed against Whiteley-Phillips Drilling Company and National Supply Company equally.

Opinion delivered April 1, 1953.

Associate Justice Culver not sitting.